Posts Tagged ‘Liechty’
Thursday, July 21st, 2011
Smeal’s John Liechty testified before the U.S. House Committee on Financial Services, Subcommittee on Oversight and Investigations, last week regarding the newly formed federal Office of Financial Research (OFR). The OFR, which was formed last year with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is charged with collecting data on the financial system to allow another government entity, the Financial Services Oversight Council, to effectively monitor its stability and ward off potential threats. The agency is the brainchild of Liechty, who spent 18 months gathering industry support and meeting with members of Congress to push its establishment.
According to The Hill‘s On the Money blog, the banking subcommittee wanted to learn “how the new Office of Financial Research plans to keep mounds of financial data safe from hackers. … With hackers always looming over the horizon, Republicans want to know what the office—which they charge lacks proper congressional oversight—is doing to keep that information in the right hands.”
In his prepared testimony, Liechty explained the origins of the OFR and why he believes its a necessary component to the country’s financial security. He opened with an outline of his three main points:
Financial stability requires transparency – The ability for regulators to both see through the counterparty network and the ability to see through asset backed, financial products to the underlying assets is an important fundamental component that is needed in order to be able to monitor the stability of the financial system. Transparency will require universally accepted identifiers and reporting standards—in essence it will require banks to get their back-offices in order. The investments required to improve transparency will not only result in improved macro-prudential regulation; they will result in improved risk management and substantial operational savings for the industry.
We face a significant scientific task – Not only do we not have the data in place, we have not done the science needed to understand system-wide risks to the financial system. In many ways, financial regulators are like the weather services, before the National Oceanic and Atmospheric Administration (NOAA) was established. NOAA was given the mandate to i) collect new data, ii) develop new models for identifying extreme events and improving weather forecasts, and iii) conduct the science necessary to understand the weather systems and build these next generation models. The Financial Services Oversight Council (FSOC) and the Office of Financial Research face similar challenges and have been given a similar mandate.
We cannot afford to fail – We live in a leveraged economy where the resilience and growth potential of the economy depends on having both an innovative and stable financial system. Innovation often leads to instability, unless the appropriate infrastructure is in place to provide stability. The FSOC and OFR offer a way forward to build this infrastructure. The risk that we live with, if we fail to have the proper oversight to provide a stable system, is not just the devastating economic impact that would come from another financial crisis of the magnitude of the 2008 crisis, but more importantly the political reality that will follow. If we can’t get this right and there is another crisis, then there is a very real risk that the political response may result in a response that adversly affects the finanical market’s ability to innovate.
You can view the entire hearing on the House banking committee’s website. For more on the Office of Financial Research and Liechty’s role in its creation, check out this Smeal Report feature from late last year.
Friday, May 20th, 2011
Public radio’s Marketplace last night reported on the federal Office of Financial Research, a new financial watchdog dreamed up by Smeal’s own John Liechty and put into place with that passage of the Dodd-Frank financial reform law. The Marketplace report, which tells the story of how Liechty came up with the idea for the oversight agency, is online here.
For more on the Office of Financial Research and Liechty’s role in its creation, check out this Smeal Report feature from late last year.
Tuesday, September 28th, 2010
Smeal’s John Liechty appeared on Bloomberg Television yesterday to talk about the Office of Financial Research, a new federal agency he helped create that is charged with identifying systemic risk in the financial sector.
You can view his appearance on YouTube.
Wednesday, September 15th, 2010
The Wall Street Journal reports today on the role Smeal’s John Liechty had in the creation of the new federal Office of Financial Research, which is part of the recently enacted financial reform bill. Here’s an excerpt:
Pennsylvania State University Prof. John Liechty last week gave an exam to his marketing class. Far from campus, another of his projects faces a much bigger test—and all of Wall Street is watching.
Mr. Liechty, 44 years old, has helped design an electronic safety net to assess systemic financial risk in a bid to prevent another banking calamity. The project—formalized as a new federal office in the financial-regulation act—is called the Office of Financial Research.
… Messrs. Liechty, Reesor and Flood got the idea for the OFR while attending a February 2009 financial-system workshop. Mr. Liechty realized regulators had no ability, or legal framework, to collect and share data on the global financial system and therefore no way to measure system-wide risk.
“Not only is it crazy, it’s dangerous,”‘ Mr. Liechty recalls thinking.
They wrote a seven-page paper proposing a national institute of finance that would operate a data center and then facilitate research and analysis. The proposal said regulators then could assess a financial contagion and perform independent stress tests for banks.
The article goes on to explain how Liechty and his colleagues worked with Congress to draft the legislation, which was signed into law by President Obama on July 21.
Thursday, May 6th, 2010
Writing in today’s Financial Times with former Chairman of the Federal Housing Finance Board Allan Mendelowitz, Smeal’s John Liechty argues that Washington needs to collect more and better financial data to effectively regulate financial markets and prevent another great recession. Liechty and Mendelowitz, founding members of the Committee to Establish the NationaI Institute of Finance, argue in favor of the establishment of the Office of Financial Research (OFR), as proposed in the financial reform bill currently on the floor of the Senate, which would collect and analyze complex financial data to respond to systemic financial threats.
Irrespective of the new authorities that are included in the final bill, regulators and policy-makers charged with exercising these authorities cannot use them effectively to improve the safety and stability of our financial markets if they are flying blind. The data the OFR will collect and the research and analysis that the OFR will undertake are essential to the success of the core legislative objective of enhancing financial market stability; and, they are critical for the ultimate success of broader financial reform.
The OFR will enable regulators to better understand complex financial products, more effectively uncover fraud, better monitor risks from large financial institutions, and for the first time see the critical linkages between important institutions in the market.
Only the most ardent opponent of regulation would oppose providing regulators and policy-makers with the data, research, and monitoring tools needed to provide for the safety and security for our financial markets. The cost of regulators continuing to fly blind is a cost that the U.S taxpayers cannot afford.
Thursday, March 26th, 2009
On Capitol Hill today, Treasury Secretary Timothy Geithner outlined changes he’s proposing that would grant the federal government greater oversight and regulatory power over the country’s financial system. The Treasury proposal would extend federal trading regulations to derivatives and would bring hedge funds under the regulatory oversight of the Securities and Exchange Commission.
Additionally, Geithner calls for tougher standards for judging whether financial institutions are too big to fail, and he proposes a new federal agency that would monitor risk.
Smeal’s John Liechty suggested similar changes to the country’s financial system in an article in yesterday’s American Banker. Liechty and co-author Allan Mendelowitz of the Federal Housing Finance Board argue for the establishment of a National Institute of Finance (NIF) that “would serve as a national data archive and think tank for the financial regulatory community.”
“A centerpiece of the NIF would be a Federal Finance Data Center,” they write. “The center would let regulators assess system-wide contagion and concentration risks, perform stress tests, including the impact of the failure of a large institution, and hence make better-informed decisions in times of crisis.”
Liechty and Mendelowitz conclude: “Without detailed data and validated decision tools, crisis decisions will continue to be based on guesswork and intuition.”
View an early version of their op-ed on Liechty’s Web site.